Valuation of a firm !!

An article in the July’s The Economist, “To fly, to fall, to fly again” stated very clearly that the Tech sector is booming, and investors are pouring millions and billions of dollars into the Tech firms of the Silicon Valley. The gold rush in discovering the next google or the Facebook is so intense, or maybe so out of the ordinary that a acronym FOMO “fear of missing out” is used to describe this specific fixation of “money giving” !! The whole tech thing is so inflated to us we had to watch the HBO’s “Silicon Valley” in order to better grasp what the fuss is all about, that is of course, from a layman’s perspective ! In reality we would never truly understand the complexity of a carefully staged Game of Thrones, and those who are willing to play are under the alias of angel investor, venture capitalist, private equity, so on and so forth !

The question that mesmerizes us is, how do we valuate a company? by discounted Cash Flow? or use the PE ratio and multiplying it according to the industry norm ?? If done so, we would be paying the investor instead, and where is the logic in that? Goodwill valuation seems less damaging and its definition includes “pays more than the fair market value of the net assets” !! Getting more than a fair share is good, greed is very good, and we like the smell of greens !! We are beginning to sound like a desperate idiot 🙂

But whatever method we would like to choose, one thing is certain we could never be on the High Valuation ground, because we are not a tech firm. To our knowledge and without any concrete evidence, the going rate in China’s private equity is above 60X PE for the tech firm, a retailer is measured at a measly 3X PE, and goodwill valuation is almost non-existent!! Very encouraging for us ! This also explains why the HK Government is encouraging and assisting (if any) Technology as a startup in entrepreneurship more so than in any other sectors.

So how do we valuate ourself? valuate at 79 USD, one strap at a time, one step at a time 🙂